Will it be 0.75%, or 1%?

09/20/2022 | 09:38am

The countdown has started ahead of tomorrow's Fed meeting. US stock futures were lower this morning, as investors braced for another interest rate hike, which will probably reach 75 basis points, and perhaps 100 basis points.

Yesterday, all Wall Street indexes ended in the green. Gains were around 0.7% for the S&P500, the Dow Jones and the Nasdaq, helped by a buying trend on big stocks such as Apple or Microsoft. There’s a bit of volatility ahead of the US central bank's rate decision tomorrow. A 75-basis point increase would move the main US policy rate from the "2.25 to 2.50%" range to the "3 to 3.25%" range. This would be the highest level reached since the 2008 financial crisis.

But you're probably starting to know the drill: more than the decision itself, it's the level that rates are likely to reach at the peak of the hiking cycle that matters to investors. That's what they'll be looking for in Jerome Powell's decision speech tomorrow. Sentiment could ease if Jay suggests that the fight against inflation is well underway. Or worsen if he puts on his Paul Volcker disguise and suggests that it's going to be a long fight.

Another hypothesis: The Fed directly raises rates by 100 basis points, although futures contracts only give an 18% probability to this scenario as of Tuesday. If this were the case, there would probably be a significant increase in volatility tomorrow night, because markets don't like surprises very much. But even then, it is how Jerome Powell argues the decision that will set the trend.

In any case, this week is a central bank bonanza globally, starting today with the Swedish Riksbank. It continues tomorrow with the Bank of Brazil and the Fed, and on Thursday, with the Bank of Japan, the Swiss National Bank and the Bank of England. On the corporate side, the main news is the reduction of Ford Motor's forecasts. The automaker is affected by supply overruns estimated at $1 billion and by component shortages that prevent it from completing vehicles in production.

 

Economic highlights of the day:

Focus on US housing with August housing starts & building permits. All the macro agenda here.

The dollar is worth EUR 1.0038. The ounce of gold is recovering slightly to USD 1667. Oil is not far off its Friday level, with North Sea Brent at USD 92.26 per barrel and US WTI light crude at USD 85.47. The yield on 10-year U.S. debt is up 2 points to 3.47%. Bitcoin is trading around USD 19,300.

 

In corporate news:

* Apple announced Tuesday that it will raise prices for apps and in-app purchases in its App Store throughout the euro zone and in some Asian and South American countries starting next month.

* United Health - A U.S. judge on Monday rejected the Department of Justice's request to block the proposed $8 billion takeover of Change Healthcare. Change Healthcare shares were up 7% in after-hours trading after the U.S. markets closed.

* Ford - The automaker said Monday that its supply costs would rise by about $1 billion more than expected in the third quarter and that 40,000 to 45,000 vehicles could not be released for sale because of a lack of components. The stock fell 5.2% in pre-market trading.

* The Boeing Company - China's aviation regulator said Tuesday that it met with Boeing officials last week regarding a possible return to service of the 737 MAX in China.

* PepsiCo told Reuters in a statement that it has halted production of Pepsi, 7UP and Mountain Dew in Russia nearly six months after it made a commitment to do so.

* Meta Platforms - The advocate general of the European Union's Court of Justice has ruled to allow competition authorities to take into account the compatibility of a business practice with the General Data Protection Regulation, an opinion that, if followed by the court, would be a setback for the owner of Facebook and Instagram.

* Zendesk - The software company's shareholders on Monday approved the proposed acquisition of the group by a consortium of investment funds led by Hellman & Friedman and Permira.

* Peloton - The fitness equipment specialist gained 2.6% in pre-market trading after the launch of a device dedicated to rowing, a first for the group in this segment.

 

Analyst recommendations:

  • Adobe: CICC initiated coverage with a recommendation of market perform. PT up 8.4% to $321.
  • Change Healthcare: Citigroup downgrades to neutral from buy; price target is $27.75
  • Diamondback Energy: KeyBanc starts at overweight with $163 price target.
  • EOG Resources: KeyBanc starts at overweight with $157 price target
  • Humana: Morgan Stanley upgrades to overweight from equal-weight. PT up 9.6% to $549.
  • Huntsman: J.P. Morgan downgrades to underweight from neutral. PT down 3.1% to $25.
  • JPMorgan Chase: Daiwa Securities upgrades to outperform from neutral, adjusts price target to $132 from $120.
  • Martin Marietta: Exane BNP Paribas upgrades to outperform from neutral. PT up 21% to $407.
  • Morgan Stanley: Daiwa Securities downgrades to neutral from outperform, adjusts price target to $92 from $85.
  • Ocado: HSBC moves from Hold to Lighten with a target of GBp 575.
  • Oxford Instruments: Jefferies maintains a Hold rating with a target reduction from GBp 2320 to GBp 2010.
  • PDC Energy: KeyBanc initiates coverage with sector weight rating.
  • Viper Energy: KeyBanc starts viper energy partners at overweight with $39 price target.
  • Wells Fargo: Daiwa Securities adjusts price target to $50 from $44, maintains outperform rating.
  • Wizz Air: Oddo BHF upgrades from Underperform to Neutral with a target of GBp 2500.
MarketScreener.com 2022
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